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The Effects of the 2008 Tax Rebate on Consumer Spending

(a) According to the News article, how much more did the average household spend on appliances, electronics, and furniture when it received the 2008 tax rebate?
(b) If the MPC was 0.9, how much would cumulative spending increase as a result?

I N T H E N E W S
Just How Stimulating Are Those Checks?
To get an idea of how much those government rebate checks have spurred spending - and who's benefiting
from the buying - business school professors Jonathan Parker (Northwestern) and Christian Broda (University
of Chicago) analyzed the spending of 30,000 rebate receiving households. Using data provided by AC-Nielsen's
Homescan, whose participants scan the bar codes on their purchases into a database, the researchers found
the rebates "clearly have increased household spending," Parker says. Lower-income households boosted
consumption most - spending 6% more, compared with a 3.5% rise across all households.

Source: BusinessWeek, September 8, 2008, p. 14.

Analysis: The 2008 tax cuts were a form of fiscal stimulus that boosted consumption (personal spending), increased real GDP growth, and reduced unemployment.

The 2008 rebate boost
Additional dollars spent due to stimulatus check:

Appliance, electronic and furniture $91
Entertainment and personal services $87
Food, health, beauty and household products $60
Clothing, shoes and accessories $32

Solution Preview

a) According to the article, the average household spent an additional $91 on appliances, electronics and furniture as a ...

Solution Summary

How to use the Spending Multiplier to calculate the effect on total spending of the US income tax rebate checks issued in 2008.

$2.19